The digital currency initiative was seen as a major personal setback for Mark Zuckerberg, who reportedly had big ambitions for this sector and wanted to create a new kind of global asset powered by the social media network giant. But, eventually, he decided to scrap the project entirely.
Here is how the entire Diem initiative unfolded and eventually ended.
Facebook (now Meta) had been interested in the digital currency space for a while now according to former executives. There were many proposals floating around the top management of the company but, Zuckerberg finally gave the go-ahead for a revolutionary new kind of digital currency that would be different than any other digital asset out there. The new division was named Libra and a whitepaper was announced back in June 2019.
According to the released whitepaper, the new Libra cryptocurrency (if we could call it) would have a new blockchain network to help maintain transactions and the digital ledger. But, the asset side of things was much more complex rather than a simple digital stablecoin. Libra’s proposed backup included a basket of different kinds of assets including major national fiat currencies, short-term government securities, and other assets like bullion, etc as well). A new digital wallet named Calibra was also announced by the company to help handle transactions and keep balance.
So, in essence, Libra intended to be a kind of digital reserve bank with its own digital currency that was backed by a range of different assets. Obviously, that didn’t sit well with a wide range of people including government regulators and transparency advocates.
Facebook, arguably didn’t choose the best time to launch its ambitious digital asset project. Much of the USA’s regulators and members of the public were still reeling from the massive complacency of the social media network during the 2016 elections. Other smaller stakeholders like transparency advocates and anti-trust organizations immediately responded with criticism as well because of the company’s lack of privacy, ethics, and overall dysfunctional governance model. In other areas of the world, Libra also faced similar backlash including a notable one in the European Union parliament as well.
Libra also completely ditched the decentralized model of governance in favor of a more centralized regime like a consortium called the Libra Association. This didn’t sit well with the larger cryptocurrency community as well, with many of the early adopters of Bitcoin, Ethereum co-founders, and even other social media networks’ CEOs criticizing the project. Jack Dorsey, the CEO of Twitter stated that the project should focus on decentralization and not just creating a new kind of asset.
Overall, the severe and immediate backlash meant that Meta was on the backfoot since the very onset of the project. While big companies like Uber, MasterCard, VISA, Paypal, eBay, and even Coinbase had given their willingness to join the Libra Association, they excused themselves within weeks and Meta was left to continue on its own.
Facebook was caught off-guard because of the backlash to the Libra project. It also didn’t anticipate that the digital currency would create such a strong controversy and bring the company’s name into the negative spotlight once again. At first, the company tried to change the narrative by incorporating big changes into the whitepaper in an attempt to address some of the pressing concerns. This was then called Libra 2.0 and contained 4 key changes overall. It was largely seen as a scaling back of the ambitious initial whitepaper.
But, the project had already attained a taboo status. The changes weren’t enough and the company eventually rebranded the entire thing to Diem and then again to Novi. The eventual plan for a basket of backed assets was scrapped completely in the favour of a USD-backed only coin. Essentially, this would have made the entire project a stablecoin attempt by Facebook, which is a far cry from the initial ambitious project.
But, regulators were still not happy with the latest iteration as well. The G7 once again singled out Novi/Diem for criticism and during that event, Germany’s Olaf Scholz, the current Federal Chancellor of the country openly opposed it and stated that it hadn’t been reassuring.
2021 proved to be the final full year for the fledgling digital currency project. Now rebranded as Diem, the stablecoin initiative failed at several renewed attempts to get a license. Even the more crypto-friendly countries like Switzerland had rejected the Diem’s registration, essentially denying them an opportunity to operate there.
The parent company was also given a new dressing down by the Democratic-controlled Congress in the USA with the chairperson of the House Financial Service Committee Maxine Waters and once again underlined major concerns despite the big rebranding efforts. Even her Republican political opponent and ranking member of the committee joined in the criticism and severely criticized David Marcus by saying that regulatory uncertainty in the crypto markets meant that Diem couldn’t possibly ever satisfy the regulatory requirements.
Eventually, Marcus resigned from his position on December 1, 2021, and didn’t go into details regarding his resignation decision. But, it was abundantly clear for most why he had resigned. Morgan Beller and Kevin Weil, the other co-founders of Diem also resigned in late 2021 and thus completed the exodus of the entire co-founding team. There was little left for Diem at the end of 2021 and an imminent scrapping was expected.
On January 31, Meta announced that it had ended the Diem division and will probably relocate key Facebook personnel remaining in the organization. Diem was a colossal failure for the social media giant. It had pinned much of its hopes on the success of the digital currency but it was all in vain.
The biggest reason, perhaps why Diem aka Libra aka Novi failed was because it simply chose the wrong time to get involved in the digital asset scene. The company’s image had already been damaged badly as its role in fake news became apparent for many around the globe. If it had launched earlier like in 2015, the same regulatory pushback may not have been witnessed. There is also the case that Jack Dorsey made that the company should have focused on existing crypto technologies that worked including Bitcoin itself.
Image Source: pixabay.com
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